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Why Batteries Matter

Northvolt’s lithium-ion battery manufacturing complex in Skellefteå, Sweden, is expected to employ up to 2,500 and receive a construction investment north of US$4.7 billion.

Images courtesy of Northvolt

by ANDREAS PAULICKS

The automotive sector needs huge capacities for lithium-ion (Li-ion) batteries. Decisions along the battery value chain are particularly complex, as well as vital to carmakers’ future competitiveness.

Why is the battery strategically crucial?

The Li-ion battery is the core for advancing electrical vehicle development. It is the predominant cost factor and the key to improving the primary performance indicator: the vehicle’s driving range. Whereas horsepower ruled in the past, today it is range, as acceleration and torque are already very high even in the smallest electrical vehicles.

There are more complicated issues, too: OEMs that have strongly differentiated themselves in the past through driving performance need other differentiation factors. However, the higher the cost of the battery, the heavier the battery and the more space it requires, the smaller the scope of other technical options to enable differentiation from competitors and to sell high-margin extras, especially as the high price of EVs forces OEMs to offer extensive base configurations.

Next issue: Independence or Cost-Efficiency?

The cost of batteries is particularly dependent on the scale of production, giving rise to giant plants like the Tesla Gigafactory or the Northvolt battery plant in Swedish Lapland, Europe’s largest lithium-ion battery manufacturing complex, entailing an investment of €4 billion (US$4.7 billion). Such dimensions enable significant cost reductions. However, these production volumes are only possible if the battery manufacturer sells to several OEMs or if other battery applications are exploited, as in the case of Tesla with its “Powerwall” home battery.

OEMs that opt to buy their batteries make themselves highly dependent on battery suppliers, with their specific knowledge, scale advantages and sourcing contracts (e.g. lithium, cobalt). For the OPEL Ampera for instance, battery production has been completely outsourced to LG, while Chinese BYD is a fully integrated battery manufacturer, from battery cells through battery pack, battery management systems and power electronics to the electrical vehicle itself.

Huge Demand

The demand for battery cells will grow tremendously in the coming years. According to IHS, today’s global capacity for producing battery cells amounts to 93 GWh, and it is expected to rise to 313 GWh within the next three years. Volkswagen recently announced a need for 150 GWh annually just for the group’s own fleet. Northvolt even sees a long-term market for 100-150 large battery factories worldwide.

While most of the battery cell plants have so far been established in Asia, there are many plants envisaged for Europe and North America to cater for the upcoming demand in these regions. Besides the Northvolt plant in Sweden:

The TerraE company, supported by 17 German companies and research institutes, is planning a giga-factory in Germany.

Mercedes is to invest €500 million (US$589 million) at Kamenz — a site in Eastern Germany.

Jaguar Land Rover will set up a battery prototype center in the UK, and is in discussion with BMW and FORD on a joint large-scale battery plant in Europe.

South Korea’s LG Chem will open Europe’s largest lithium-ion battery factory in Poland next year.

Samsung SDI will be launching production of high-power and high-efficiency batteries in Hungary in 2018.

SK Innovation, a South Korean battery cell supplier whose customers include Mercedes, will invest 840 billion won (US$777 million) to build an electric vehicle battery plant in Hungary in order to meet the demand from automakers in Europe.

Chinese company A123 opened its Czech battery plant in March 2017.

Nissan has established large-scale battery production operations in Sunderland, UK.

Continental AG has plans to set up a large battery plant in Europe.

Bosch has ambitious plans with 48-volt hybrid batteries, and is expected to extend its capacities as well.

Risk Mitigation

The location decision process for a Li-ion battery plant is particularly complex, as many cost and risk factors must be considered, according to René Buck, founder and CEO of site selection consulting company BCI. He also emphasizes the time factor: As the market is growing fast, the time it takes to go from making a decision to an up-and-running plant is a crucial element.

For Northvolt, a stable and cost-efficient power supply was a decisive factor, along with infrastructure and skilled labor. Renewable energy sources around the plant can help to minimize the carbon footprint of the production process and to foster a green position.

According to a study conducted by consulting firm Roland Berger on behalf of the German National Platform for Electro Mobility, the availability of battery experts is a key factor, and a deficit exists in Germany, for example, compared to Asian locations.

Andreas Paulicks is a Senior Partner at the consulting firm PM&P in Frankfurt, Germany. He has more than 20 years’ experience in assisting companies in international strategic marketing, including large corporations from the US and Europe. Andreas also advises investment promotion agencies worldwide on attracting foreign direct investment with an emphasis on the automotive industry.

Has Scotland Cornered the Market on the Next Business Currency?

by MARK AREND

The last time I was in Edinburgh — 32 years ago — I was struck by the always changing and always dramatic sky, not to mention the remarkable architecture and people on the ground. The beauty and topography of Scotland’s capital city and region naturally hasn’t changed much in three decades. It still impresses, but something else stood out on a recent location advisors’ tour I participated in with several site consultants.

Nearly every presentation we were given at nearly every site we visited included mention of the local workforce’s expertise in data analysis, programming or related functions. Or how the company we were visiting had carved a niche out for itself as a specialist in the data analytics side of its industry sector, be it in life sciences, financial asset management, healthcare or clean energy production.

Maybe the Scots always had this skill, and there are simply more ways to apply it today. Maybe they know they must differentiate themselves from business locations elsewhere in Europe — or in the UK, for that matter. Look beyond the universities and data-specialty companies, where such proficiency is expected, and you’ll find whole ecosystems of programming and data expertise in Edinburgh, Glasgow, Aberdeen and elsewhere. It’s making Scotland competitive at the highest echelons of the “knowledge economy” — the Holy Grail of economies everywhere. And Scotland’s demonstrably more affordable than London and other European commercial centers.

Not Just Any Talent Pipeline

I looked into this data-expertise phenomenon more closely when I returned home and found the November site tour had barely scratched the surface of this vast talent pool. One resource I came across — there are many — is The Data Lab, the mission of which is to “revolutionize Scottish industry in how it develops and applies cutting-edge analytics and data science. We are here,” its website explains, “to capture new market opportunities, boost productivity and connect experts.”

It does that by fostering collaboration between industry, the public sector and university researchers in order to develop new data science capabilities. The Lab is one of eight innovation centers funded by the Scottish Funding Council. Its core mission: to generate significant economic, social and scientific value from data.

Among other initiatives, The Data Lab organizes an MSc program — the latest got underway in October with 130 students enrolled, up from 90 previous years — from 11 Scottish universities. A Data Lab blog post from October 5, 2017, elaborates: “The MSc program is core to The Data Lab’s aim to unlock the estimated £20 billion value of data to Scotland and generate 248 high-value jobs. Over 500 students have benefitted from The Data Lab’s education program, which includes the MSc, industrial doctorates and executive education programs among other training opportunities running since 2015.”

Josh Ryan-Saha, skills program manager at The Data Lab, explains in the same blog: “The best companies and organizations are now using data to develop new products and services. They can choose anywhere in the world, so Scotland needs to have people here with the skills they need now and in the future.

“Scotland is in a good place at the moment,” he adds. “There is local talent here — as underlined by the appetite for the MSc program both from candidates and from employers. We are committed to ensuring this pipeline of talent continues to flow.”